Proposal to increase beneficial interest disclosure requirement

On 5 December 2024, the Australian Government released a paper outlining a number of proposed reforms to disclosure requirements in relation to unlisted entities (Proposals). The Proposals include several changes to the requirements for disclosure of beneficial ownership in Australia, as well as the systems for regulation and compliance.

Most notably, the Proposals include the implementation of a beneficial ownership register, increased disclosure requirements for trusts, and increased powers of enforcement.

Intended Outcomes

Overarching objective

Overall, the Proposals seek to increase transparency and accountability in respect of the ownership and benefits from Australian companies and legal entities.

Reduce financial crime

It is alleged that the current framework for disclosure allows for complex ownership structures to be used to disguise ownership and facilitate tax evasion, money laundering and other financial crimes. Further, the lack of corporate transparency and potential gaps in regulatory coverage, create opportunities for exploitation and present wide-ranging risks to the effectiveness of regulatory and law enforcement operations.

The implementation of a beneficial ownership register seeks to mitigate the obscurity of beneficial ownership that gives rise to financial crime, hinders law enforcement, and threatens Australia’s standing in the international community.

Beneficial ownership reform for legal vehicles

The Proposals intend to establish beneficial ownership requirements for legal vehicles, such as trusts, which the paper alleges has presented a risk of regulatory arbitrage or displacement of illicit funding structures under the present framework.

Create a beneficial ownership transparency regime for unlisted companies

The Proposals intend to address the inconsistencies in Australia's disclosure framework by introducing a systemic framework for collecting information on beneficial ownership for all corporate structures. The Proposals also intend to bring Australia's beneficial ownership transparency in line with international Financial Action Taskforce standards.

Proposals

Entities subject to disclosure requirements

The paper proposes to make the below changes relating to unlisted proprietary companies, unlisted public companies (including companies limited by guarantee and no liability companies), and unlimited liability companies (collectively, Regulated Entity(s)).

Additionally, the Proposals include tailored requirements for:

1. Director-owner companies
2. Companies limited by guarantee (CLBGs)
3. Corporate not-for-profit entities (NFP)
4. Registered charities with corporate structures
5. Wholly-owned subsidiaries
6. Managed Investment Schemes (MIS) and Corporate Collective Investment Vehicles (CCIV).

Record of beneficial owners

Under the Proposals, unlisted companies must collect, verify and record information about their beneficial owners. Regulated Entities will be required to 'trace-through' the following entity types to determine their beneficial owners:

1. Foreign companies not registered in Australia that do not have equivalent disclosure obligations in their jurisdiction or registration
2. Trusts, including self-managed superannuation funds (SMSFs) and small APRA funds (SAFs)
3. Partnerships
4. Incorporated and unincorporated associations
5. Registered cooperatives.

Beneficial owners must also self-identify to unlisted companies. A beneficial owner will include a person who either directly or indirectly holds 25% of the shares or voting rights in the Regulated Entity.

Access to this  information would initially be limited to journalists, academics, entities with AML/CTF reporting requirements and certain regulators and law enforcement agencies. In the second stage, this information would be publicly available via a Commonwealth-operated register.

Safeguards for vulnerable beneficial owners

Vulnerable people who believe they would face a safety risk from the publication of their beneficial interests may apply to ASIC for a suppression of their personal information.

Disclosure of trust information

Where a trust appears in the beneficial ownership chain, the trustee will be required to disclose specific beneficial ownership information. Additionally, trustees of all trusts in a beneficial ownership chain will need to record beneficial ownership information about the trust, including the trustee as well as individuals or entities under the trust instrument with the ability to remove a trustee.

Disclosure requirements will vary by type of trust.

1. Unit trusts - named beneficiaries in the trust deed who meet the definition of a beneficial owner (such as directly or indirectly holding 25 per cent or more of the units in the trust) would need to be disclosed.
2. Fixed trusts - all beneficiaries named in the trust deed would need to be disclosed, (including anyone who has significant influence or control in the trust).
3. Discretionary trusts - an obligation to provide the names of any individuals or entities the trustee reasonably believes:
   • would receive a distribution from the trust;
   • has already received a distribution in the last three years;
   • has significant influence or control in the trust excluding existing beneficiaries.

ASIC power to issue temporary freezing notices

ASIC would have the ability to issue a temporary freezing notice to a Regulated Entity that does not comply with a request from ASIC or to a person suspected of being the registrable beneficial owner of a Regulated Entity.

A freezing notice would empower ASIC to enact temporary restrictions on the use, dealing, and ability to derive benefits from shares until necessary disclosures have been made in line with the Proposals. ASIC may continue a freezing notice if it believes that the information provided in response to a freezing notice is different from what would have been provided if the disclosure had been made originally. This is intended to prevent beneficial owners from changing their ownership status to avoid being listed on a beneficial ownership register after being contacted.

Freezing notices are intended to be temporary with ASIC required to make an application  to a  court to make them for a lengthy period of time.  The proposal does not set out the mechanics  for such notices to be issued or for how long such notices will last and what appeal rights lie to the courts.

Implementation

The paper plans a staggered rollout of the Proposals, with the first stage being that Regulated Entities maintain their own register of beneficial ownership, followed by a Commonwealth-operated register at a later time.

The Proposals also note that ASIC resourcing be increased to assist with the regulatory and compliance action that will need to be taken in relation to the Proposals.

Conclusion

The proposals are designed to aid in law enforcement and will clearly assist in doing so.

As these proposals are part of an international effort to combat money laundering and tax avoidance  it is inevitable that it will be enacted and clients should be prepared  for it and alter their record keeping accordingly.

Authors

Neil Hannan | Partner | +61 3 8080 3589 | nhannan@tglaw.com.au

Jasper Guthrie | Summer Clerk

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